Detroit completes streetlight bond deal in first borrowing to improve services since bankruptcy

Dec. 13, 2013

Kevin Downey, linesman for Overhead Lines, removes an out of service street light at the intersection of Brock and Collingham in Detroit, Mich. on Friday, Nov. 8, 2013. / Andre J. Jackson/Detroit Free Press

Written by

Detroit Free Press Business Writer

Despite Detroit’s insolvency, its Public Lighting Authority on Friday completed a $60-million bond deal for the overhaul of the city’s broken-down street lighting system and possible installation of modern LED fixtures.

The bond issue is the smaller of two crucial transactions for borrowing a total $210 million that U.S. Bankruptcy Judge Steven Rhodes approved last week over objections from Detroit’s creditors.

The second bond issue — roughly $150 million — is expected to happen in the second quarter of next year and, according to the lighting authority, could be enough to both finish the overhaul and repay the $60 million borrowed Friday.

The Friday deal represents the first big borrowing to improve Detroit services since the city’s July 18 bankruptcy filing. The transaction was done through the Michigan Finance Authority and placed with New York-based Citibank. The lighting authority is a separate entity from Detroit city government.

The money from both bond issues will finance the lighting authority’s three-year plan to relamp street lights by ZIP code. The lights have an estimated 40% outage rate.

Work crews are fixing lights in two neighborhood-size pilot areas. They will proceed to the ZIP code stage of the work once those pilots are completed in the first quarter of next year.

Odis Jones, the authority’s executive director, said crews will aim to complete the overhaul in one ZIP code each month.

The authority’s five-member board could decide Wednesday whether to install modern LED streetlights as part of the overhaul. The majority of Detroit’s 88,000 light fixtures (working and non-working) use older mercury vapor and high-pressure sodium technologies.

Although LED light fixtures carry more up-front expense, they last longer, require less maintenance and have better defenses against metal thieves, Jones said.

The authority looked at installing solar-powered streetlights, but had concerns about long-term durability and maintenance, he said.

The $60 million in bonds have a floating interest rate that’s about 1.75% and tied to an international lending rate. If all goes according to plan, the bonds would be paid off next year with proceeds from the $150-million bond issue.

Both bond issues will be backed by a $12.5 million portion of the $40 million in annual revenue generated by a Detroit utility tax. That tax money has traditionally gone to hiring and retaining Detroit police officers. To prevent a cut to police, the city last year delayed a scheduled decrease to its income tax rates.

One outside financial analyst Friday called the new financing a reasonable deal for Detroit.

“For Detroit to raise capital in the future, it will need these types of loans: backed by liens on special revenue streams, mortgages, guaranties, or other kinds of enhancements,” Matt Fabian, a managing director at Concord, Mass.-based Municipal Market Advisors, wrote in an e-mail. “It will be very hard for the city to use its general obligation pledge on its own going forward.”

Creditors objected to the arrangement because they wanted the $12.5 million revenue stream on the table during Detroit’s coming bankruptcy reorganization.